Saturday, June 15, 2013

MRE ON THE VAT REFUND

A couple of weeks ago I ended my column with the question: “As applied to VAT refund, do the equities
of the case demand only prospective application of the rule?”

The rule I was referring to, of course, was the “operative fact”
rule. The rule, which is of
American origin, says: ““"The actual
existence of a statute, prior to such a determination [of unconstitutionality],
is an operative fact and may have consequences which cannot justly be ignored.
The past cannot always be erased by a new judicial declaration. The effect of
the subsequent ruling as to invalidity may have to be considered in various
aspects, with respect to particular relations, individual and corporate, and
particular conduct, private and official."

Clearly, the rule does not say prospectivity only. Prospectivity
or retroactivity will depend on “various aspects, with respect to particular
relations, individual and corporate, and particular conduct, private and
official." As recently shown
by the Luisita case, the invalidation
of the stock transfer system was first applied prospectively only, but was later
reversed to make the invalidation retroactive as demanded by the equities of the
case. Even American decisions do
not apply the rule in a unidirectional case.

The background for my article which I ended with a question was
this: Under the law, for investors to be able to bring in capital equipment,
they must pay the VAT but with the promise that the VAT will be refunded upon
the filing of a proper claim.

There are two steps in the refund process. The first step is administrative:
filing a claim for refund with the
BIR. The second step, when needed,
is filing for refund with the Court of Tax Appeals. The law says that the investor has 120 + 30 days from denial
of the claim by the BIR or from the inaction of the BIR to file the claim for
refund with the Court of Tax Appeals.

The practice allowed in the past was that the investor need not
wait for the lapse of 120 days before going to the Court of Tax Appeals or
CTA. But if he does go to the CTA
early and in the mean time the BIR approves his claim for refund, that
terminates the case of before the CTA.
This was the practice followed by the BIR and the Court of Appeals for
several years and it had the approval of the Supreme Court.

A recent decision of the Court, however, held that this practice
was all wrong and that investors who had filed their claim following the old
practice could not avail of the “operative fact rule” and must suffer
invalidation of their still pending claims. The decision, in other words, was applied retroactively and
not prospectively. Thus my
question: Do the equities of the case demand only prospective application of
rule?

I deliberately did not answer my own question because weighing
the equities of the case is not a simple matter.

A concurring opinion on the case, however, had a simple answer: “The capacity to bear the costs of these
[official] mistakes in interpretation is generally better internalized by the
private taxpayers rather than carried by the public as a whole.”

The question, however, is not about who has the better capacity
to bear the cost of official mistakes.
The question is:
What is fair? The fact that a
taxpayer has a bottomless pocket does not mean that he has no right to be
treated fairly.

The taxpayer, after all, will receive the refund only after a
finding that the VAT already paid was not due; that is, it did not belong to
the government. In the first
place, the taxpayer had paid the tax in advance because he had no other choice
if he wanted to do business.
Advance payment was required by law.

A letter of the Chambers of Comemerce to Secretary Purisima said:
““The rule established by the Supreme Court should only be given a prospective
effect. Otherwise, it will result to grave damage and prejudice of . . .
taxpayers who have complied fully and in good faith with the then prevailing
procedures sanctioned by the BIR and accepted by the courts. The long line of
decisions by the Supreme Court, the Court of Appeals and the Court of Tax
Appeals clearly indicate that prior to the [latest] ruling, the BIR and the CTA
did not observe the 120+30 day periods in actual practice. We believe that if
these decisions are taken into consideration, it will radically change the
outcome of the case. We also believe that the failure of the courts to rule in
favor of a prospective application will undeniably result in an unwitting yet
palpable and grave violation of the constitutional guarantee of due process
(notice requirement) as well as equal protection. . . .”

It is understandable that the Chambers of Commerce should speak
in such categorical terms. But
they were speaking mainly of the San Roque
et al cases and what they claimed was that the equities of the case should
favor San R.oque et al. But there are other Vat Refund cases
awaiting decision. They should be
reviewed individually to determine where the equities of the case are.

In all fairness, this is probably also what the concurring
opinion I cited also meant when it said that the cost is “generally better internalized by the private
taxpayers rather than carried by the public as a whole.” The language admits of exceptions. True, the life blood of a state are
taxes; but they should be collected fairly.